Semiconductor manufacturing in Taiwan today
Taiwan Semiconductor Manufacturing Co., Ltd
- 52 week range
- $100.00
▼
$222.20
- Dividend yield
- 0.89%
- P/E ratio
- 34.46
- Price target
- $217.00
Taiwan Semiconductor Manufacturing Co., Ltd New York Stock Exchange: TSM It did so again in its latest earnings release. The company impressed markets with its fourth-quarter results, sending shares up significantly on the day. The report marks the company’s 14th consecutive quarter, beating estimates for adjusted earnings per share (EPS).
The king of the world’s chip industry continues to show its strength, which is supported by the demand for advanced node technologies. Below, I’ll delve into more specific details of the report and put them in the context of my overall view of Taiwan Semiconductor Manufacturing Company, also known as TSMC.
TSMC shares rise on strong earnings
Overall, TSMC’s report was full of positive developments. This included revenues that rose 37% for the fourth quarter of 2023 And an increase of more than 14% from the third quarter of 2024. The company also expanded margins significantly, both from the previous year and from the previous quarter. Particularly strong was the increase in operating margin of 740 basis points compared to 2023. Sales of advanced nodes, which describe chips made using seven-nanometer or smaller technology, are important.
Lower nanometer chips can perform more advanced tasks because more transistors are able to fit on the same surface area. This increases its computational power while also increasing energy efficiency. These 7nm and smaller technologies largely overlap with the end-use case of high-performance computing (HPC). Over the full year, HPC sales contributed 51% of total revenue and achieved the highest growth rate ever at 58%.
As is the case with many companies with high expectations, beating estimates alone is often not enough to lift their stock. Providing strong future guidance is also important. For Q1 2025, TSMC has also checked this box. Although it sees a notable contraction in revenues and margins compared to the fourth quarter, the numbers still exceed expectations. Much of this slowdown is due to lower seasonal demand for smartphones after the holidays.
Although the company’s financial results are unlikely to be as high as in 2024, TSMC still expects to have a very good year in 2025. The company expects revenue growth of the mid-20s. It also sees revenue from AI accelerators doubling in the year after tripling in 2024.
Taiwan Semiconductor Manufacturing Co., Ltd. (TSM) price chart for Friday, January 17, 2025
Key geopolitical risk analysis: US vs. China
One of the biggest risks that many point to regarding TSMC is geopolitical tensions between the US and China. The United States has made strong efforts to limit China’s access to advanced semiconductor technology, imposing bans on certain products in the country. On January 15, President Biden Issued more controls To keep advanced chips out of Chinese hands. This appears to be a significant near-term risk although TSMC management has dismissed the effects as minimal.
Hedge fund manager and founder of J and J Investment, Jonah Cheng, sees new rules as potential It has a huge impact On TSMC’s business. It is estimated that it will have at least a 7% impact on TSMC’s revenue, as it also includes restrictions on automotive chips. If controls extend to Bitcoin mining chips, this impact could reach up to 15%. On the other hand, TSMC reported that only 12% of its revenue came from China in 2023. However, accounting nuances affect what the company considers revenue from a particular country. It can differ from how analysts calculate this number.
It will be interesting to see what percentage of revenue TSMC attributes to China in its upcoming annual report, a 20-F filing. This report is supposed to be released in mid-April. In its earnings call, TSMC management likely eased some concerns around this risk. They said they are applying for special permits to prevent non-AI customers from being affected by the effects. If it can secure that, the company’s revenue impact could be less than 4%, based on Cheng’s analysis.
TSMC: Long-term winner faces near-term headwinds
Overall, TSMC still maintains an incredibly wide moat in advanced chip manufacturing, ensuring its position as a leader for the foreseeable future. The company also goes to great lengths to please the US government. Its 4nm process is scheduled to begin production at its Arizona factory in the first half of 2025. It also plans to establish another factory in the state with more advanced processes available by 2028.
However, government controls can lead to short-term volatility. This is especially true given the uncertainty about what the Trump administration might do. Clarifying the details of operating its new U.S. chip factory could also create operational hiccups. Overall, I remain bullish on TSMC stock in the long term; However, these are important risks to consider in the near term.
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